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Money, debit card, gross-settlement risk, and central banking

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  • Choi, Hyung Sun

Abstract

A monetary model is constructed to explore the effects of a new source of inefficiency of gross settlement with an operational risk on the choice of cash that is risky to hold and a debit card that is costly to use. During inflation, gross settlement would entail the deposit of a larger amount of money as payments and collaterals for the finality of the settlement process, thereby leading to a consumption loss. The endogenous adjustment between gross and net settlement may alleviate this distortion from inflation. Hence, the optimal monetary policy is to decrease the money supply so as to minimize the cost of theft and transaction costs of a debit card usage.

Suggested Citation

  • Choi, Hyung Sun, 2019. "Money, debit card, gross-settlement risk, and central banking," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:ecofin:v:50:y:2019:i:c:s1062940818304960
    DOI: 10.1016/j.najef.2019.100993
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Money; Debit card; Gross-settlement risk; Central banking;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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